WPP PLC

Ticker: WPP, Buy below $90.

WPP is a multinational advertising and public relations company based out of London.

Why I Would Buy

  1. Cheap – WPP is currently selling for < 10x earnings.
  2. Dividend – Pays close to 5%, while maintaining a payout ratio hovering around 40%.
  3. Return on Equity – RoE has been above 10% for past decade, and above 15% for past 3 years.
  4. Beaten Down – Beaten down due to uncertainties surrounding the departure of the founder-CEO, and also due to several major accounts coming up for renewal this year.
  5. Globally Diversifiedhas significant revenue streams emanating from every major and developing economy around the world.

What Could Go Wrong

  1. Account Renewals – Several large global accounts are up for renewal this year, just lost one of these (HSBC). If several others are lost, will hurt revenues grievously.
  2. Debt – Several large recent acquisitions were financed via debt, if revenues taper due to any reason; it could snowball into a major problem.
  3. High Beta – Advertising and media spend are strongly correlated to global economy, and is first spending to be cut in a downturn.

Disclosure: I am long WPP, please read additional disclosures here before taking any action based on this post.

TCP Capital Corp.

Ticker: TCPC, Buy below $16.

TCP Capital Corp is a Small-Cap Business Development Company that is focused on middle market lending.

Why I Would Buy

  1. Dividend – Yields over 9%. This dividend is well covered by Net Investment Income (110% dividend coverage in 2017).
  2. Insider Trends – Officers has been aggressive buyers for last 12 months, especially so within the last 3 months.
  3. Credit Ratings – TCP Capital’s debt is rated investment grade, a testament to the company’s strong balance sheet.
  4. Cheap – TCPC currently trades below its book value.
  5. Fee Structure – TCPC has one of best advisory fee structures in the BDC industry, its base and incentive fee compensations are shareholder friendly.

What Could Go Wrong

  1. High Beta – BDCs like TPC that serve the middle markets are strongly correlated to the domestic US economy, and will suffer disproportionately in an economic downturn.

 

Disclosure: I am long TCPC, please read additional disclosures here before taking any action based on this post.

Hersha Hospitality Trust

Ticker: HT, Buy below $18.

Hersha Hospitality Trust is a small cap REIT focused on hospitality industry.

Why I Would Buy

  1. Cheap– Trailing P/AFFO: < 9x.
  2. Insider Trends – Management has been aggressive buyers for last 12 years, especially so in the last 3 months.
  3. Dividend – Currently yields over 6%. This is well covered by Adjusted Free Flow from Operations (AFFO), the payout is less than 55%!!
  4. Buyback – A recently announced buyback would retire 13% of outstanding shares.
  5. Below Book –Hersha trades below 80% of book value.

What Could Go Wrong

  1. High Beta – The Hotels industry is strongly correlated to the overall economy, and would suffer disproportionately in a downturn.
  2. Industry Trends – Home rental services are potentially disruptive trends for the hospitality industry, the full extent of impact is indeterminate.

Disclosure: I am long HT, please read additional disclosures here before taking any action based on this post.

The Interpublic Group

Ticker: IPG, Buy below $24.

Why I Would Buy

  1. Cheap– Interpublic trades at less than 14 times forward earnings and 1.1 revenues.
  2. RoE – Return-on-Equity is my favorite metric, IPG has maintained double digit returns on equity for the past decade.
  3. Dividend – Currently yields over 3%.
  4. Contrarianism – IPG is near a 52 week low.

What Could Go Wrong

  1. High Beta – Advertising and media spend are strongly correlated to global economy, and is first spending to be cut in a downturn.
  2. High Payout – Payout ratio has been steadily climbing, and is nearing 50% of earnings.

Disclosure: I am long IPG, please read additional disclosures here before taking any action based on this post.

Franklin Street Properties

Ticker: FSP, Buy below $12.

Why I Would Buy

  1. Cheap– Franklin Street Properties is trading at just 11 times forward FFO (free flow from operations).
  2. Dividend – FSP yields over 7%, while the FFO payout ratio hovers around a healthy 75%.
  3. Credit Rating – FSP enjoys investment grade ratings.
  4. Insider Buying – Managers and directors at Franklin Street purchased 150,000+ shares during the past 12 months, of which 131,275 were purchased during the past 3 months. No shares were sold by insiders during this period.

What Could Go Wrong

  1. Hurricanes Harvey and Irma – Houston is one of the key markets for Franklin Street, and they own properties in Miami and Atlanta too. Therefore, the impact of Harvey and Irma on FSP’s cash flow is indeterminate at this point.

Disclosure: I am long FSP, please read additional disclosures here before taking any action based on this post.